Creating and Using a Cost Formula Big Thumbs Company manufac

Creating and Using a Cost Formula Big Thumbs Company manufactures portable flash drives for computers. Big Thumbs incurs monthly depreciation costs of $14,400 on its plant equipment. Also, each drive requires materials and manufacturing overhead resources. On average, the company uses 12,200 ounces of materials to manufacture 6,100 flash drives per month. Each ounce of material costs $3.00. In addition, manufacturing overhead resources are driven by machine hours. On average, the company incurs $24,400 of manufacturing overhead resources to produce 6,100 flash drives per month. In your calculations, round variable rate per flash drive to the nearest cent. If required, round final answers to the nearest cent. Create a formula for the monthly cost of flash drives for Big Thumbs. If the department expects to manufacture 6,000 flash drives next month, what is the expected fixed cost (assume that 6,000 units is within the company\'s current relevant range)? What is the total variable cost (assume that 6,000 units is within the company\'s current relevant range)? What is the total manufacturing cost (i.e., both fixed and variable) (assume that 6,000 units is within the company\'s current relevant range)?

Solution

Variable cost = Material Cost per flash drive + Manufacturing overhead per flash drive

= 12200 * 3 / 6100 + 24400 / 6100

= 6 + 4 = 10 per flash drive

Fixed Cost = Depreciation cost = $14,400

1. Formulae for monthly cost of flash drive :

Total cost of flash drives = $14,400 + $(10 * no. of flash drives)

Total cost of flash drives = $14,400 + $(10 * 6100) = $75,400

2a. If the department expects to manufacture 6,000 flash drives next month,

the expected fixed cost = $14,400 per month

2b. The total variable cost = 6000 units * 10 = $60,000

2c. The total manufacturing cost = $14,400 + $(10 * 6000) = $74,400